Talks are continuing to try to resolve the fate of 20 Palestinian militants trapped in the West Bank headquarters of President Yasser Arafat.
Until now, Israel has demanded the surrender for trial of the men it said had killed Israelis and taken refuge in Mr Arafat's compound, known as the "muqata", in the city of Ramallah.
A Palestinian source said Israel had proposed moving the men to the ancient desert town of Jericho, but the Palestinians had rejected the conditions attached. He did not spell out what they were.
Israeli officials could not immediately be reached for comment on what would appear to be a softening of their stance.
All 20 militants are members of the al-Aqsa Martyrs' Brigades, a group which has launched suicide attacks against Israelis and is linked with Arafat's Fatah movement.
One Fatah official demanded the men's unconditional release since they had accepted a three-month truce militants declared on June 29th to allow progress on a US-backed peace plan.
"All of them are committed to the ceasefire, therefore no measures should be take against them. Their case should be resolved as part of a political solution," said the local official, Hussein al-Sheikh.
Israel army radio quoted an al-Aqsa Brigades official as saying the men had refused what he said was an order from Mr Arafat to leave for Jericho.
Under the "road map" to peace launched by US President George W. Bush on June 4th, Israel and the Palestinians agreed to an immediate ceasefire, halting 34 months of violence.
As a confidence-building measure, Israel has agreed to release 540 Palestinian prisoners from among 6,000 being held, but refuses to free those it says have attacked Israelis.